The property and casualty insurance industry is heading toward a period of vigorous growth.
Swiss Re projects that insurers' premium volume will double over the next two decades. It will reach $4.3 trillion by 2040, the reinsurer predicts in its report More risk: the changing nature of P&C insurance opportunities to 2040. In 2020, the industry's total written premium volume was $1.8 trillion, the reinsurer notes.
Where will this growth come from? Much of the new premiums written will arise from the fight against climate change, Swiss Re says, with a 22 per cent increase in the volume of premiums written to cover property. The main driver is an increase in natural catastrophes, the reinsurer adds.
Swiss Re also anticipates a shift in the industry. It expects to write a growing number of premiums to protect homes and businesses. Auto insurance will remain its major focus, but to a lesser extent than today, the report says, dropping from 42 per cent to 32 per cent of the industry's written premiums from 2020 to 2040.
Covering more property will fuel the industry’s growth by an average of 5.3 per cent annually in this specific market segment. Total premiums will rise accordingly, from $450 billion in 2020 to $1,300 billion in 2040.
Liability risk underwriting will also advance significantly, with average annual growth of 4.7 per cent by 2040, Swiss Re estimates. Its growth areas: Climate change effects and the rise of artificial intelligence, together with social and legal changes between now and 2040.
Underwrite more risk
Swiss Re’s chief economist Jerome Haegeli says the industry needs to underwrite more risks to fulfill its social role. Climate change is imposing this imperative, he argues.
“Promoting the conditions for long-term sustainable growth is particularly important in the face of climate change, which poses the biggest long-term threat to the global economy. If we are to build a sustainable insurance system that allows society to manage and absorb future risks, we need to make risks and opportunities quantifiable. Our work is also vital for policy makers with whom we share the aim of making economic growth insurable,” he says.
In the short term
Near term growth is also foreseen, Swiss Re adds. In the lead-up to the Rendezvous de Septembre de la Reassurance in Monaco, the reinsurer estimated that premium volume written by the property and casualty insurance industry should rise 10 per cent above the pre-COVID level by the end of 2021. The industry is even expected to surpass the 7 trillion mark in premiums written during 2022, the reinsurer predicts.
Swiss Re underlines that while climate change represents the greatest growth opportunity for the industry, it also poses a real threat.
Why? Because if society does not respond to the climate threat, a contraction of GDP by 2050 remains possible, the reinsurer cautions.
The need for more insurance coverage is therefore present, Swiss Re says. However, insurers must increase their exposures to the risks they are willing to underwrite.
“As the risk landscape evolves and risks become more complex, there needs to be an even greater focus on evaluating and modelling these risk trends and ensuring pricing is adequate for the risks taken. Therefore, the importance of underwriting capabilities is further increasing, all the more given the persistent low interest rate environment,” says Swiss Re’s Group Chief Underwriting Officer Thierry Léger.
